China - Changchun Water Supply and Environmental Project

Document of The World Bank Group FOR OFFICIAL USE ONLY Report No. 19961 IMPLEMENTATION COMPLETION REPORT CHINA CHANGCHUN WATER SUPPLY AND ENVIRONMENTAL PROJECT (CREDIT 2457-CHA) February 11, 2000 Urban Development Sector Unit China Country Management Unit East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency = Renminbi Currency Unit = Yuan (Y) At the time of appraisal: $1 = Y 5.48 At the time of project completion mission: $1 = Y 8.28 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CSC - Changchun Sewerage Company CWSC - Changchun Water Supply Company ICB - International Competitive Bidding ICR - Implementation Completion Report IDA - International Development Association GIS - Geographic Information System PMO - Project Management Office PRC - People's Republic of China SAR - Staff Appraisal Report SDR - Special Drawing Right Vice President : Jean-Michel Severino, EAPVP Country Director : Yukon Huang, EACCF Sector Director : Keshav Varma, EASUR Task Manager : Wiebe Moes, EASUR  FOR OFFICIAL USE ONLY CHINA CHANGCHUN WATER SUPPLY AND ENVIRONMENTAL PROJECT (CREDIT 2457-CHA) TABLE OF CONTENTS Preface .............................................................v Evaluation Summary ............................................................ vii Part I: Project Implementation Assessment ............................................................1l A. Statement/Evaluation of Objectives .............................................................1 B. Achievement of Project Objectives .............................................................3 C. Major Factors Affecting Project Implementation .........................................7 D. Project Sustainability .............................................................9 E. IDA Performance ............................................................ 10 F. Borrower Performance ............................................................ 11 G. Assessment of Outcome ............................................................ 12 H. Future Operations ............................................................ 13 I. Key Lessons Learned ............................................................ 14 Part II: Statistical Tables ............................................................ 17 Table 1: Summary of Assessments ............................................................ 17 Table 2: Related Bank Loans and IDA Credits ............................................... 18 Table 3: Project Timetable ............................................................ 19 Table 4: Credit Disbursement: Cumulative Estimated and Actual .................. 19 Table 5: Key Indicators For Project Implementation ...................................... 20 Table 6: Key Indicators For Project Operation ................................................ 21 Table 7: Studies Included in Project ............................................................ 22 Table 8a: Project Costs (in $) ............................................................ 22 Table 8b: Project Costs (in Y) ............................................................ 23 Table 8c: Project Financing ............................................................ 23 Table 9: Economic Evaluation ............................................................ 23 Table 10: Status of Legal Covenants ............................................................ 24 Table 11: Compliance with Operational Manual Statements .......................... 25 Table 12A: IDA Resources: Staff Inputs (Actual Staff-weeks) ....................... 25 Table 12B: IDA Resources: Staff Inputs (Actual $) ........................................ 25 Table 13: IDA Resources: Missions ............................................................ 26 Annex A: ICR Mission's Aide-Memoire ............................................................ 27 Annex B: Borrower's Contribution to the ICR ...................................................... 30 Map No. IBRD 24063R This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   - iii - IMPLEMENTATION COMPLETION REPORT CHINA CHANGCHUN WATER SUPPLY AND ENVIRONMENTAL PROJECT (CREDIT 2457-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Changchun Water Supply and Environmental Project in China, for which Credit 2457-CHA in the amount of Special Drawing Rights (SDR) 86.6 million ($120.0 million equivalent) was approved on February 9, 1993 and made effective on September 9, 1993. The Credit was closed on June 30, 1999, six months after the original closing date of December 31, 1998, to facilitate final payments. An amount of SDR 19,880,000 ($26.9 million equivalent) was canceled due to misprocurement. Final disbursement took place on December 7, 1999, and a balance of SDR 7.85 ($10.7 million equivalent) was canceled. The ICR was prepared by a team consisting of Mr. Wiebe Moes (task team leader) and Mr. Herbert Boehm (consultant) with assistance of Mr. Zhang Zhun (consultant). It was reviewed by Mr. Keshav Varma, Director, Urban Development Sector Unit, and by Mr. Yukon Huang, Country Director, China, East Asia and Pacific Region. Preparation of this ICR started during the International Development Association's (IDA) supervision mission in September 1998. The ICR is based on information obtained during the ICR mission and on data and materials in the Project File, including analyses prepared by the Borrower and the ICR team. The Borrower's final comments on the draft ICR, received in September 1999, are incorporated in the final ICR version. In addition, the Borrower prepared its own project implementation evaluation, which is included as Annex B of this report.   IMPLEMENTATION COMPLETION REPORT CHINA CHANGCHUN WATER SUPPLY AND ENVIRONMENTAL PROJECT CREDIT 2457-CHA EVALUATION SUMMARY Introduction 1. Background. Prior to 1980, the Chinese Government paid little attention to the adequate provision of urban services. During the 1980s the cities and towns began allocating substantial resources to improve the urban water supply and sanitation infrastructure, but it became increasingly recognized that in order to sustain economic growth and improve environmental conditions in the urban areas, the cities would have to make large-scale investments in the water supply and wastewater sectors for the foreseeable future. In this context, Changchun Municipality became an excellent example of the limitations that deficient water supply and wastewater systems place on a city's ability to become an industrial center and its desire to improve the standard of living for its population. Without substantial improvements to its urban infrastructure, its significance as a major motor vehicle production and transport equipment manufacturing center was at stake. The Changchun Water Supply and Environmental Project was prepared to meet these requirements and, at the same time, to assist in long-term policy formulation in these sectors and to improve their institutional structure and organization. 2. Project Objectives. The project objectives were to assist Changchun Municipality to: (a) improve water supply to meet the domestic needs of the urban population and to support industrial growth; (b) reduce industrial and domestic water pollution through building physical works, strengthening institutions, developing regulations, improving operational management, and making changes in the pricing policy; and (c) create a demonstration project where the lessons learned could be shared with other municipalities in China. The institutional strengthening objective was aimed at assisting Changchun Municipality in establishing appropriate sector institutions, policies and regulations, improving operation practices and promoting water conservation. 3. Project Components. The principal project components for achieving improvements in urban water supply, appropriate wastewater disposal and institutional development included: (a) construction of a raw water transmission pipeline to convey water from the Second Songhua River at Majia to Changchun via the Shitoukoumen Reservoir; construction of pumping stations, expansion and improvement of urban water treatment facilities, and expansion of the capacity of the water distribution system; (b) construction of a trunk interceptor sewer and a primary sewage treatment plant, and  - vi - procurement of equipment and instruments for environmental quality monitoring and control; and (c) technical assistance for design and construction supervision, management support to the water and sewerage companies including the preparation of staff training programs, and implementation of a hazardous waste study. 4. Evaluation of Objectives. In light of Changchun's dire need to provide improved quality and quantity of water for its population and to cope with the burgeoning industrial growth demand as well as to control the city's growing urban pollution, the project's original objectives were well defined and also well understood by all participating project agencies. Since urban service provision had become a critical limiting factor for the ambitious goals of the city, these project objectives were very important for its future economic development and for the welfare of its inhabitants. For the Changchun Municipality this project represented the largest infrastructure investment ever attempted in its history. The very size of the project itself was a challenging endeavor, and the fact that major institutional changes in the sector and reforms in pricing policies and management had to be carried out over the project implementation period rendered prospects for smooth completion of the project even more daunting. While there was initially strong commitment by the provincial and municipal governments to implement appropriate policies and reforms, it became increasingly evident that the required changes in such areas as institutional reforms, pricing policies especially for sewerage tariffs, providing sufficient management capabilities for the Changchun Water Supply Company (CWSC) and setting up the Changchun Sewerage Company (CSC) as an independent and effective organization would be difficult to achieve. As a result, the nonphysical objectives, i.e., reorganizing the sector, converting the utilities into effective and efficient operating companies, developing appropriate policies and regulations and creating a model demonstration project, appear to have been overly ambitious in light of the status of the sector at the beginning of the project. Implementation Experience and Results 5. Achievement of Project Objectives. Overall, the project objectives were achieved partially. Insofar as the raw water transmission and urban water supply components are' concerned, physical and financial objectives were achieved to a large degree. The project has also been successful in improving the sewage collection system in Changchun. However, the project may realize the benefits anticipated from a centralized wastewater treatment facility only after a four-year delay since this component was not funded by IDA as originally anticipated in the project, due to misprocurement. It has been reported that new funding for this project has been obtained by the municipal government. The authorities expect construction to be completed by the end of 2000. Institutional efforts, in particular with regard to institutional simplification, strengthening of CWSC, establishment of a functional sewerage utility, and expected pricing reforms also remained below expectations. Consequently, the desired demonstration effect from this project whereby the positive lessons learned could be shared with other municipalities in China is markedly below the originally expected level.  - Vii - 6. Construction of the raw water conveyance system was completed at the planned capacity although commissioning of the works was delayed by about two years. A contract for two sections of the pipeline from Majia to the Laoyeling tunnel was canceled by IDA on December 15, 1997 due to misprocurement, but the Government funded completion from its own resources. Based on appropriate engineering standards, the quality of construction is deemed generally poor although there is considerable variation among the various contracts. While over the short term these quality deficiencies may be of lesser impact, over the expected life of the project maintenance and replacement investments may substantially exceed industry levels. Construction quality suffered primarily due to deadline pressures placed on contractors to complete work at an early date, in conjunction with weak construction management and supervision and the insufficient use of the international project consultant team for construction quality review. However, the Changchun authorities maintain that despite some partial deficiencies, the water conveyance system meets all the design requirements of the bidding documents. 7. The extensive physical works of the urban water supply component, including the 220,000 cubic meters per day (m3/d) Water Treatment Plant No. 3, pumping stations and transmission lines, were completed on schedule and are in operation. This component achieved the original objective of expanding the water supply service coverage in Changchun to 97 percent during the project execution period and thus eliminated the past need for water rationing by residences and industries. Overall, construction quality of the Water Treatment Plant No. 3 appears to be better than that observed in the raw water transmission component. 8. Under the sewage collection and treatment component an approximately 10-kilometer (km) sewage interceptor pipeline was built with the beneficial effect of eliminating numerous sewage discharges from the densely populated inner city. IDA funding for the planned wastewater treatment plant with a capacity of 390,000 m3/d was canceled on December 15, 1997 due to misprocurement. The Changchun Municipal Government reported that it has recently obtained State funding to build the plant and expects construction of the facility to be completed by the end of 2000. Contrary to original plans, the implementation of this component will not be carried out under World Bank Group procedures nor with the assistance of the project management consultants. It is therefore too early to rate the achievement of this component's objective. Under the assumption that this component will be implemented in a similar fashion as the other components under the project, the wastewater treatment plant would meet its original project objectives albeit substantially later than originally expected. 9. The technical assistance and training component of the project was initially appraised at SDR 6.2 million. However, the Project Management Office (PMO) availed itself only sparingly and reluctantly of this resource. In light of the great difficulties encountered in design, construction and supervision as well as in the procurement activities during the implementation period, far more intensive use of international consultants would have been desirable. Although technical assistance utilization was substantially increased during the last two years of the project, ultimately some $4.3 million was disbursed for this purpose by the closing date of the Credit. While the  - viii - institutional development objectives for the project may have only been partially achieved, a number of noteworthy accomplishments in the technical assistance and training category have been realized, such as completion of a toxic/hazardous waste management and industrial park study and several worthwhile operational system improvements. The Borrower expressed satisfaction with the achievements of this component. 10. The project's financial objectives were only partially achieved. Water supply tariffs were increased four times during the project construction period. According to the audit reports, these adjustments were technically sufficient to meet the financial covenants of the CWSC Project Agreement. However, CSC has not been able to institute sewerage tariffs for residential users and those charged to industrial customers remain inadequately low, thus forcing the company to incur substantial operating losses in 1997. 11. Major Factors Affecting Project Implementation. All major factors affecting the project were generally within government or implementing agency control. However, the project was affected by the devaluations of the yuan and by a rapid price escalation of primarily construction materials and installation equipment. 12. Project Sustainability. Overall project sustainability is rated likely. Jilin Province and Changchun Municipality have a vital interest in providing sufficient quantity and quality of water to the more than 2 million people and to the burgeoning industrial sector in the water-scarce urban area of Changchun. 13. Economic Rate of Return. The water supply component, i.e., the raw water transmission component combined with the urban water supply component, achieved an approximate economic rate of return of 12.6 percent, which compares favorably with the appraisal forecast of 11.3 percent. Since the construction of the wastewater treatment plant has not yet been completed, reliable estimates were not available for the calculation of its economic rate of return. 14. IDA Performance. IDA's performance during identification was satisfactory, but unsatisfactory during preparation, appraisal and early implementation stages of the project. If more attention would have been paid to project readiness through a more rigorous review of the design quality of the individual components, the need for the inordinate amount of design revisions during implementation and for the excessive number of change orders could have been reduced. This led to the six-month extension of the Credit closing date to facilitate final payments. IDA insisted on a comprehensive project concept encompassing water supply and wastewater treatment. IDA correctly anticipated the technical assistance needs. However, in light of the encountered procurement problems, it underestimated the need to provide sufficient information and training opportunities concerning World Bank Group procurement procedures. Because of the project entities' lack of experience with large, internationally funded infrastructure projects, a high level of project supervision by IDA was anticipated over the life of the project. While the actual number of missions carried out from 1993 to the end of 1998 exactly matched the SAR projections, the actual weeks spent in the field amounted to only 18 staff-weeks, far below the originally expected level of 70 staff-weeks.  - ix - Particularly troublesome is the low supervision effort in the critical first three project implementation years. From FY97 onward, supervision efforts increased substantially toward the originally planned levels. Over the entire implementation project period, there were three changes of task managers whose messages and decisions, according to the Borrower (see Borrower's contribution to the ICR), were not always consistent. While these personnel changes are not unusual over the full implementation period of a project, it is essential that task managers possess the required qualifications, expertise and experience to adequately supervise complex projects. 15. Borrower Performance. The Borrower's commitment to the physical objectives of the project remained strong during project implementation. Counterpart funding, for example, was never a major problem. However, there was a lack of support at the provincial, as well as initially at the municipal level for wastewater tariff increases to reduce CSC's operating losses and to allow it to comply with financial covenants. Moreover, the Borrower's performance was generally deficient in the preparation phase of the project as evidenced by substantial change orders during project construction and by the substantial lack of quality control concerning the design and the soil and water testing work. In addition, there were startup problems during the actual implementation of the project that impeded the effectiveness of the PMO and delayed design finalization and the preparation of procurement documentation. By 1994, the Changchun Municipality had strengthened the PMO, but could not fully resolve the other project obstacles, such as establishing a constructive relationship with the water utility company and increasing the support of the management consultants from a mere advisory role. Although some parts of the projects were implemented with great urgency and even ahead of the originally expected time schedule, e.g., the Water Treatment Plant No. 3, procurement and disbursement problems became increasingly serious with some of the components experiencing up to two years of completion delay. Consequently, PMO's performance was no longer considered satisfactory and therefore, the overall implementation performance had to be rated deficient. The unfortunate misprocurement of two major contracts resulting in a Credit cancellation of about SDR 19.9 ($26.9 million equivalent) confirmed this evaluation. This incident and the many change orders submitted to IDA without providing advance notification of the often considerable design changes, also raises questions as to whether the PMO saw IDA as a constructive partner in the project. The failure to meet some of the key financial covenants, as well as the substantial procurement problems in the project require that the Borrower's compliance with covenants be rated as deficient. 16. Technical assistance could clearly have overcome some of the PMO's general lack of construction management capabilities to simultaneously carry out a multitude of complex and large-size projects. PMO's reluctance in utilizing this resource available under the project is not uncommon in Chinese infrastructure projects. But in those projects where expert technical input was sought and utilized, the outcome has been almost invariably beneficial to the project's outcome. Another aspect, which also seems to be a generic problem in Chinese infrastructure projects, is the lack of proper representation by the utility companies during construction. The project management offices, as was the case here also, are staffed by persons from the construction bureaus and from other agencies. The end-users, therefore, have little direct input to design and  x project implementation. This creates friction between the parties and often reluctance to accept the facilities as built. While this project attempted to overcome these constraints by creating three "sub-PMOs," in practice it really did not work as conceived since these arrangements require an inordinate level of cooperation, and ultimately the final decision- making power remained with the PMO. 17. Assessment of Outcome. Overall the project is rated unsatisfactory. Insofar as the water supply part of the project is concerned, the project has achieved most of its expected development results. However, the project did not achieve its major objectives concerning wastewater pollution because of the failure to complete the wastewater treatment plant before the project closing date and to properly adjust sewerage tariffs as covenanted. Despite the failure to complete the wastewater treatment plant during the project implementation period, the project did have a positive effect on the city's industrial and domestic pollution situation by virtue of the constructed interceptor sewer pipeline. In a broader sense, the city also benefited from the project by gaining considerable experience in carrying out large infrastructure projects and by increasing its knowledge as to how to deal with foreign suppliers, contractors, consultants and international financial institutions. 18. The extremely low utilization of technical assistance funds underscores the limited commitment by the project agencies to institutional development and the subsequent disappointing achievements. A qualitative assessment of the technical assistance program revealed poor follow-up and little utilization of the techniques learned by the trainees, such as in the distribution optimization plans and in GIS applications. The project's financial objectives were only partially achieved, even though the water tariffs were increased four times during project implementation. However, CSC was not allowed to institute sewerage tariffs for residential users, causing the company in 1997 to incur operating losses three times the size of its operating income. Also, the project assets have yet to be transferred from the PMO to the operating utilities, partly due to quality of construction disputes. Future Operations and Key Lessons Learned 19. Future Operations. CWSC and the Northeast Municipal Engineering Design Institute have developed a Water Master Plan for Changchun Municipality. Through technical assistance provided under the project, long-term, computerized operational planning systems were developed that provided CWSC with excellent management tools. In addition, a reorganization in 1997 of CWSC and extensive training programs provided for senior leadership, mid-level managers and operators should help the company to become a stronger and more efficient organization. The company's financial outlook remains positive as long as adequate tariff increases continue to be approved by the Government. In contrast, CSC remains a small operation until the new wastewater facility is built and financially uncertain until adequate tariffs for its services are approved by the provincial government.  - xi - 20. Key lessons learned from the implementation of the project include: Project Preparation (a) Design institutes for major civil works projects should be selected on the basis of relevant experience and not be limited to those institutes that happen to operate in the same city or province. Local design institutes should be appointed only if they have the necessary background and project design expertise. The selection review should carefully assess the financial strength of these entities, proficiency of their engineers and operating resources. In order to improve efficiency, oversight and leverage, the number of design institutes should be kept to a manageable level. The design fees set by the government may be too low to attract and provide adequate services. (b) The accuracy of final designs should be assured using, inter alia, actual soil conditions based on comprehensive geological and hydrologic surveys and other relevant documents. This would avoid costly design modifications, implementation delays and expensive change orders. Significant problems in this regard occurred with the Majia pumping station (excessive groundwater; differing soil conditions of the auxiliary structure, boiler house and chimney structure); Dashuihe pumping station (differing soil condition of pump house and auxiliary structure; changed road; inadequate water for boiler house; inaccurate elevations; site material different for switch room); Laoyeling tunnel (differing rock formation; excessive groundwater); and the wastewater interceptor (differing soil conditions). (c) Preliminary and final designs should be reviewed by experienced consultants, if necessary by an international team of experts. (d) End-users, e.g., the project utilities, should be involved at the preparation stage to obtain their input and consent not only to ensure ownership commitment, but also to reduce change orders during the construction period and plant modification expenses during the operating phase of the project. (e) The project management office should be set up with qualified personnel and fully operational prior to project implementation. (f) The need for strict compliance with the World Bank Group's procurement guidelines should be emphasized to all parties project management personnel, the involved utilities, design institutes, contractors and supervision companies. To this end, ample training and follow-up training should be provided. Project Implementation (a) An unmanageable number of supervision companies should be avoided. As the concept of supervision companies is relatively new in China, particular attention should be paid to their past experience with similar projects in terms of project quantity and complexity. If needed, additional training should be provided and  - xii - construction management consultants should periodically review their performance. (b) Design and construction consultants should be involved in detailed review of design and project implementation in large and complex projects. An only limited (functional) role is insufficient unless the Borrower has proven expertise. If indicated, as it would have been in this project, there should be full-time representation of the construction consultant, including a permanent resident engineer for the full implementation period, in order to monitor construction quality, to dispense appropriate advice and to review change orders as they are initiated. (c) Management consultants should, until sufficient experience is acquired by the local project management staff, participate in the decision-making process concerning project matters. (d) Training programs should be tailor-made for China to ensure effectiveness. The persons to be trained should be those who actually carry out the work in the respective fields. Senior managers do not always pass on their knowledge to junior staff. (e) Clear, written communication between IDA and the Borrower with appropriate confirmation and follow-up during supervision missions can avoid costly mistakes, especially concerning procurement matters. (f) A project should be nominated as a "demonstration project" only after it has been completed and proven to meet or exceed expectations, not at the time of preparation. Financial Performance (a) In order to properly determine the size of a project and its long-term sustainability, it is essential that realistic demand projections for infrastructure services be developed.  IMPLEMENTATION COMPLETION REPORT CHINA CHANGCHUN WATER SUPPLY AND ENVIRONMENTAL PROJECT CREDIT 2457-CHA PART I: PROJECT IMPLEMENTATION ASSESSMENT A. STATEMENT/EVALUATION OF OBJECTIVES 1. Background. During the 1960s and 1970s, the Chinese Government focused primarily on the industrialization of urban areas. Little attention was paid during this period to the adequate provision of urban services. Although during the 1980s the cities and towns allocated substantial resources to improving the urban water supply and sanitation infrastructure, it was increasingly recognized that in order to sustain economic growth and improve environmental conditions in the urban areas, they would have to make large-scale investments in the water supply and wastewater sectors for the foreseeable future. In this context, Changchun Municipality became an excellent example of the limitations deficient water supply and wastewater systems can have on a city's ability to become an industrial center of great importance and its desire to improve the standard of living for its population. Without substantial improvements to its urban infrastructure, its significance as a major motor vehicle production and transport equipment manufacturing center was at stake. The Changchun Water Supply and Environmental Project was prepared to meet these requirements and at the same time assist in long-term policy formulation in these sectors and to improve their institutional structure and organization. 2. This project was originally proposed to be part of the Liaoning Environment Urban Project (Ln. 3781-CHA), but it was found to be impractical to combine both projects due to the geographic differences between the two provinces. It was also determined that, in order to achieve the required benefits from the investments in Changchun, major institutional changes and reforms in pricing policies were required. This could be accomplished with a higher degree of probability if the project would focus solely on Changchun Municipality. 3. Project Objectives. As stated in the Staff Appraisal Report (SAR) No. 11040- CHA, the project objectives were to: (a) improve water supply in Changchun Municipality to meet the domestic needs of the urban population and to support industrial growth; (b) reduce industrial and domestic water pollution through building of physical works, strengthening of institutions, development of regulations, improvements in operational management, and changes in pricing policy; and (c) create a demonstration  project where the lessons learned could be shared with other municipalities in China. The institutional strengthening objective was aimed at assisting Changchun Municipality in establishing appropriate sector institutions, policies and regulations, improving operation practices and promoting water conservation. In particular, the project supported the plan to end the organizational fragmentation of planning and design, construction, and operations and maintenance of water supply and sewerage services among several municipal agencies. 4. Project Components. Under the project the existing water supply system was to be improved and expanded from 440,000 cubic meters per day (m3/d) to 795,000 m3/d and a central sewage treatment facility (390,000 m3/day) was to be constructed to provide primary treatment for the city. The three principal components for achieving these improvements were: (a) construction of a raw water transmission pipeline to convey water from the Second Songhua River at Majia to Changchun via the Shitoukoumen Reservoir; construction of pumping stations, expansion and improvement of urban water treatment facilities, and expansion of the capacity of the water distribution system; (b) construction of a trunk interceptor sewer and a primary sewage treatment plant, and procurement of equipment and instrunents for environrmental quality monitoring and control; and (c) technical assistance for design and construction supervision and to furnish management support to the water and sewerage companies including the preparation of staff training programs, and to implement a hazardous waste study. 5. Evaluation of Project Objectives. In light of Changchun's dire need to provide improved quality and quantity of water for its population and to cope with the burgeoning industrial growth demand as well as to control the city's growing urban pollution, the project's original objectives were well defined and also well understood by all participating project agencies. Since urban service provision had become a critical limiting factor for the ambitious goals of the city, these project objectives were very important for its future economic development and for the welfare of its inhabitants. Moreover, these objectives were consistent with IDA's strategy to assist municipalities in China to improve urban services provision. 6. When IDA canceled funding for the wastewater treatment plant and two sections of the raw water transmission pipeline in 1997 due to misprocurement, construction of the wastewater treatment plant had to be delayed by several years as the Changchun Municipality sought alternative funding. The city authorities are now expected to complete the construction of the wastewater treatment plant by the end of year 2000 under funding assistance (Y 260 million or about $31 million) from the State Government. However, the entire raw water transmission pipeline was completed on time under the Borrower's own financing. 7. For the Changchun Municipality this project represented the largest infrastructure investment ever attempted in its history. Thus, the size of the project itself was a challenging endeavor, let alone the fact that major institutional changes in the sector and reforms in pricing policies and management had to be carried out over the project implementation period. Moreover, to meet the project objectives, the two utilities for water supply and wastewater would have to be managed in a more market-oriented  manner, and the large number of provincial and municipal agencies involved in the sector would have to be markedly reduced and more effectively managed. While initially there seemed to be a strong commitment by the provincial and municipal governments to support the implementation of appropriate policies and reforms, it became increasingly evident that the commitment to require changes in such areas as institutional reforms, pricing policies especially for sewerage tariffs, providing sufficient management capabilities for CWSC and setting up CSC as an independent and effective organization, began to fade as project implementation progressed. As a result, the nonphysical objectives, i.e., reorganizing the sector, converting the utilities into effective and efficient operating companies, developing appropriate policies and regulations and creating a model demonstration project, took a backseat to the construction of hardware. It is difficult to understand that, with the limited experience of the Borrower, such ambitious targets were set for this project, while the supervision effort by IDA during the first years was extremely limited. B. ACHIEVEMENT OF PROJECT OBJECTIVES 8. Overall Assessment. Achievement of the project's objectives overall is rated partial. The project has to some degree achieved its physical and financial objectives insofar as the raw water transmission and urban water supply components are concerned. It further has managed to improve the wastewater disposal situation in Changchun through the construction of a 10 km interceptor sewer. Unfortunately, the project will be able to realize the benefits anticipated from a centralized wastewater treatment facility only after an about four-year delay due to misprocurement. Institutional efforts, in particular with regard to institutional simplification, strengthening of CWSC, establishment of a functional sewerage utility, and expected pricing reforms also remained significantly below expectations. Consequently, the desired demonstration effect from this project whereby the positive lessons learned could be shared with other municipalities in China is markedly below the originally expected level. 9. Raw Water Transmission. Construction of the water conveyance system from the Second Songhua River at Majia to the Shitoukoumen Reservoir, including pipeline construction, an 8 km long tunnel at Laoyeling, a low-lift pumping station at Majia and a booster pumping station at Dashuihe, was completed at the planned capacity (475,000 m3/d ). Commissioning of the works took place in December 1998, a delay of about two years behind the SAR project completion schedule. Two contracts for a large portion of the pipeline from Majia to Shitoukomen were canceled by IDA on December 15, 1997 due to misprocurement, resulting in the cancellation of the corresponding Credit amount (SDR 5.2 million or $7.2 million equivalent). 10. Although there is considerable variation among the various contracts, the quality of construction is deemed generally poor under appropriate engineering standards. Deficiencies concerning concrete walls and floors and equipment installation, and lack of adequate bedding material, backfilling and compaction in some sections of the pipeline were observed. While over the short term these quality deficiencies may be of lesser impact, it is thought that over the expected life of the project, maintenance and replacement investments may substantially exceed industry levels. Construction quality  - 4 - suffered primarily due to deadline pressures placed on contractors to complete work at an early date in conjunction with weak construction management and supervision and the insufficient use of the international project consultant team for construction quality assurance. While the Changchun authorities acknowledged that quality deficiencies do exist in some works, they emphasized that overall, this component does meet the design specifications of the bidding documents. 11. Urban Water Supply. The extensive physical works of the urban water supply component, including the 220,000 m3/d Water Treatment Plant No. 3, pumping stations and transmission lines, were completed on schedule and are in operation. In fact, due to an expected serious water shortage, work on the Water Treatment Plant No. 3 was advanced by about 10 months so that half of its capacity was available during the summer months of 1996. This component achieved the original objective of expanding the water supply service coverage in Changchun from 90 to 97 percent during the project execution period, and eliminated the need for water rationing for residences and industries as had been necessary in the past. However, since the Changchun Municipal Government built an additional water treatment plant outside this project (Treatment Plant No. 4) and, in addition, past water demand projections appear to have been substantially overestimated, both plants are currently running only at about 50 percent capacity. 12. Construction quality of the Water Treatment Plant No. 3 appears to be generally satisfactory despite the fact that initial problems with sludge removal from the settling tanks were observed, but were subsequently resolved. Nevertheless, it should be pointed out that there are a number of similar projects in China where construction quality is considerably better. Pumping stations and transmission lines associated with the plant, however, may not entirely meet the appropriate standard expected for World Bank Group-funded projects. It should be noted that the Changchun authorities are fully satisfied with this component pointing out that no problems have been encountered during the first two years of operation. 13. The water supply component, i.e., the raw water transmission component combined with the urban water supply component, achieved an economic rate of return of 12.6 percent which compares favorably with the appraisal forecast of 11.3 percent. No financial returns were computed in the SAR. The selection of the water supply and transmission alternatives was based on least-cost analysis. 14. Sewage Collection and Treatment. According to the SAR, wastewater management was considered the key component of the water supply project. Under this component an approximately 10 km sewage interceptor pipeline was built with the beneficial effect of eliminating numerous sewage discharges from the densely populated inner city. A primary wastewater treatment plant with a capacity of 390,000 m /d was included in the project in the northern outskirts of the city. IDA procurement guidelines were found to have been violated as the contract for the plant was not awarded to the lowest evaluated bidder and construction on the plant started without IDA's knowledge or approval. Therefore, on December 15, 1997 an amount of SDR 14.7 million ($20.3 million equivalent) was canceled from the Credit. The Changchun Municipal Government is reported to have obtained a commitment for funding (Y 260 million or  - 5 - $31 million) from the central government to complete within the next couple of years the wastewater treatment facility since it would not be able to fund this project entirely from its own resources. 15. Due to the fact that the wastewater treatment facility will not be completed in time as foreseen under the project, the achievement of this component's objective within this project must be rated as negligible. Nevertheless, there is the positive effect of the interceptor sewer that was successfully completed within this project. Under the circumstances, the economic rate of return for sewerage collection and treatment comparable to that given in the SAR cannot be calculated for this component. 16. If the treatment facility is not constructed within a reasonable period of time, the environmental effect from the additional water capacity generated under this project, estimated at 350,000 m3/d, will have an overall detrimental pollution effect not only on Changchun Municipality, but also on the receiving water downstream from the city, especially the Yitong River system into which most of the additional wastewater is discharged. It was hoped that through this project, the majority of the waste loading contributed by Changchun Municipality would be removed from the Yitong drainage system and the river classification could ultimately be elevated from Class III to Class II, resulting in improvements in agriculture and public health. Clearly, without the wastewater treatment plant these expected benefits cannot be achieved. 17. Technical Assistance and Training Objective. The technical assistance and training component of the project was extensive, appraised at $13.2 million. However, the PMO availed itself only sparingly and reluctantly of this resource. In light of the inexperience of the project agencies with the size and complexity of such projects and their lack of expertise in working with international contractors and international lending agencies, the proposed level of technical assistance and training was by no means overdimensioned. On the contrary, the great difficulties encountered in design, construction and supervision as well as in the procurement activities during the implementation period raised questions as to whether the level of technical assistance should perhaps have been even more extensive. Although technical assistance utilization was substantially increased during the last two years of the project primarily as result of IDA's supervision effort, the ultimate disbursements amounted to only $4.3 million by the closing date of the Credit. The extremely low utilization of technical assistance funds underscores the limited commitment by the project agencies to institutional development and the subsequent disappointing achievements. Nevertheless, it must be pointed out that the Borrower considers the achieved results satisfactory and in line with expected effectiveness. Among a number of useful studies, they single out as noteworthy examples the toxic/hazardous waste management and industrial park study and a water resource optimization model. 18. It should be noted that even large doses of technical assistance and training are not effective unless there is full commitment by the Borrower to utilize them in its policy-making and project decision-making activities. With the noteworthy exception of a number of studies and computer applications, technical assistance and training appeared to have achieved less than the originally expected results in terms of either increased  -6 - operational improvements or improved project design, construction management and quality assurance. Therefore, in mid-1997 at the initiative of IDA, a markedly different approach to the provision of technical assistance was chosen, emphasizing more constructive and proactive involvement by the international consultant team whereby explicitly formulated and dated outputs were developed. This new approach clearly had a positive effect on CWSC and CSC, but with only one year remaining to project closing, the consultants' input had only limited impact on overall construction management. 19. Although the institutional development objectives for the project have only been partially achieved, a number of noteworthy accomplishments in the technical assistance and training category have been realized. Specifically, they include: (a) completion of a toxic/hazardous waste management and industrial park study; (b) preparation of a water resources optimization model of the project area; (c) completion of water leakage detection activities of the water distribution networks; (d) introduction of GIS methods and training for CWSC and CSC; (e) preparation of an energy management database for CWSC; (f) development of an industrial waste database and monitoring system; (g) increased operational training for CWSC and CSC managers and operators; (h) assistance in developing the water supply master plan; (i) training related to the new communication system for the water supply network; (j) preparation of the CSC report on organization and responsibilities; (k) improvements in the sewer collection system; and (1) development of a customer account database and a computerized accounting system. In a qualitative assessment of the technical assistance program, the consultants responsible for its implementation cited numerous successful applications, such as the senior leadership training, the water resource optimization program, and the GIS system training, but also complained about poor follow-up and nonutilization of the techniques learned by the trainees, such as in the distribution optimization plans and in GIS applications. Other observations noted by the consultants found that the courses were too short, without any long-term assignments that encourage intensive training, feedback and interaction. Training programs should be tailor-made for China to ensure effectiveness. The persons to be trained should be those who actually carry out the work in the respective fields because senior managers do not always pass on their knowledge to junior staff. While it was also criticized that the Borrower in general rejected working managers from foreign utility companies as trainers because of their high fees, a small number of such specialists did provide some valuable technical assistance. Finally, it was felt that IDA ought to have applied more pressure on the Borrower to utilize the technical assistance allocation to a larger degree. 20. Financial Objectives. The project's financial objectives were only partially achieved. Water supply tariffs were increased four times during the project construction period and the 1997 audit report for CWSC confirms, without providing details, compliance with the tariff covenant of the Credit Agreement. On April 1, 1998 the water tariff was increased to Y 2.25/mi3 ($0.27/m3) for industrial users and to Y 1.20/m3 ($0.14/m3) for residences. Nevertheless, according to the 1998 audit report, CWSC could meet the financial covenants only because the project assets had not been transferred to the company and therefore depreciation expenses were correspondingly lower. CSC has not been able to institute sewerage tariffs for residential users and those charged to industrial customers remain inadequately low, causing the company in 1997 to incur  - 7 - operating losses three times the size of its operating income. While a tariff schedule was approved by the Changchun Municipal Government on June 15, 1998, it is not expected that the provincial government will approve it until the completion and operation of the new wastewater treatment facility. This linkage with the start of the operation of the wastewater treatment is clearly inconsistent with the objectives of the project and in violation of the covenants in the legal agreements. 21. The achievement record regarding other financial requirements is also mixed. A collection and accounting system for combined water and sewerage bills has been set up and, once the wastewater fees are approved, they will be collected by CWSC on behalf of CSC. Computerized programs for operational and financial planning and forecasting have been developed and put into operation by both utilities. Ownership of the public sewer network was officially transferred to CSC on December 14, 1993. However, the sewer interceptor pipeline will not be transferred to CSC until after the completion of the new wastewater treatment plant, which the authorities expect by the end of 2000. On the water supply side of the project, despite repeated promises by the authorities and the fact that some works were physically completed more than two years ago, such as the Water Treatment Plant No. 3 (December 31, 1998), none of the project assets have officiallv been transferred to the utilities. Furthermore, Changchun Municipality is in violation of the covenant to eliminate all commercial, domestic and other exemptions from water charges and sewerage fees by completion of the project. C. MAJOR FACTORS AFFECTING PROJECT IMPLEMENTATION 22. Factors Outside Government Control. All major factors affecting the project were generally within government or implementing agency control. 23. Factors Subject to Government Control. The project received various degrees of govermnent support and commitment at the central, provincial and municipal levels. In particular at the municipal level, the project was accorded high priority and was considered a key project because at its completion it would provide clean water to the city's urban population, lift past water restrictions, remove major growth restraints curtailing further industrial development, and reduce urban pollution. A case in point is the close collaboration between Jilin Province and Changchun Municipality to resolve the issues related to the location of the Majia intake and raw water pumping station as a result of a decision by the Northeast Hydropower Administration to relocate a dam downstream from the original location. Since the Changchun Municipality had no prior experience with World Bank Group-funded projects, a higher degree of professional assistance, if available, may have prevented some of the implementation problems. 24. As this was Changchun's largest infrastructure project ever, the municipal government had to devote a large amount of its limited managerial resources to the project. Reportedly, the situation was exacerbated by the decision to build, outside the project under review, another water treatment plant (No. 4) during the project period, further stretching available managerial resources and possibly overbuilding needed water supply (both water treatment plants No. 3 and No. 4 are presently running at only half capacity). This, together with project startup problems by the PMO, CWSC, and the  - 8 - design and supervision consultant firm, contributed to an implementation delay of the water supply components of about two years compared to the appraisal expectation. The project was further affected by the devaluations of the yuan and by a rapid price escalation of primarily construction materials and installation equipment. The provincial government's failure to approve a sewerage tariff schedule before Credit closing resulted in CSC's inability to comply with financial covenants. 25. Factors Subject to Implementing Agencies' Control. Inexperience in procurement matters and problems in completing final designs in a timely fashion caused implementation delays of the water supply components. When the PMO decided to make up for some of these delays, construction quality was compromised, in particular with regard to the raw water transmission component. Due to poor implementation, the official transfer of assets to the operational entities has not taken place. 26. As a result of poor surveys and inadequate design work, but also due to frequent decisions for design changes, a large number of change orders, were required, thus increasing project costs and delaying project implementation. A further contributing factor was the limited input sought from the international consultants who appear to have often been underutilized. Nevertheless, the project succeeded in developing improved management, operational and financial systems for both utility companies. Land acquisition and resettlement activities, reviewed by an IDA expert, proceeded satisfactorily during the early project implementation phase. 27. Procurement and Contracting. The project suffered to a large degree from the misunderstanding of and general lack of adherence to the procurement requirements stipulated by World Bank Group-financed projects. This is particularly difficult to explain as the two procurement agencies provided assistance in this area and procurement training was provided to several project managers prior to Credit approval. However, little follow-up training was provided during project implementation and the responsibilities of the international construction and management consultants included inadequate procurement assistance and training. In hindsight, IDA's supervision efforts should have been more rigorous and resourceful in the early implementation stages to achieve better adherence to the World Bank Group procurement guidelines. For example, the PMO presumed that IDA's preferred mode of pricing would be based on unit rates rather than lump sum, although IDA had advised this method for only one specific bid package (water treatment plant). The Borrower expressed concern about IDA's lengthy approval process. Clearly, the most prominent evidence of the procurement problems experienced in this project were the misprocurement of two major contracts for a total of SDR 19,880,000 (approximately $26.9 million equivalent) and an inordinate number and size of change orders exceeding the original bid prices by an average of 38 percent, often without prior approval of IDA. These problems, which have been analyzed in considerable detail by the Borrower with the help of the management consultants, as well as by an IDA retained consultant with regard to the change orders, can be summarized as follows: * Misprocurement. In September 1997, it was discovered that the Borrower had signed contracts for (a) parts of the pipeline from Majia to Shitoukomen; and (b) a  wastewater treatment plant with two companies prior to IDA's approval of the bid evaluation reports. In fact, construction activities had already commenced for a number of months on both project sites. Although the two companies were ranked as the lowest evaluated bidders by the Borrower, IDA had repeatedly questioned the disqualification of a number of lower bidders. The Borrower claimed the projected serious water shortage in Changchun as justification for its actions. The Borrower also quoted its fear of losing IDA funding if the contract was not completed before the closing date of the Credit, despite written assurance from IDA that it would favorably consider a request for extension of the closing to enable the PMO to complete the works. Ultimately, IDA had no alternative under these circumstances but to declare misprocurement of the two contracts and to cancel the respective amounts of the Credit. Change Orders. The total estimated cost of 141 change orders submitted to the IDA for approval was over $20 million after contractual price and foreign exchange adjustments, or some 40 percent over the original contract prices. Deviating from normal practice, most of the change orders were not presented to IDA for prior review and were submitted to IDA only during the final phase of project implementation. About one-third of the total value of the change orders were the result of actual site conditions being different from those set out in the contracts. Better project preparation and design work, such as thorough geological and hydrologic investigations and clarification of land ownership and easement rights could have avoided costly design changes. Deficiencies in the Bill of Quantities prepared by the design institutes required adjustments of another third of the total amount of change orders. The last third was due to design changes initiated after contract signing, and again are evidence of inadequate design work or lack of coordination among the involved governmental entities. D. PROJECT SUSTAINABILITY 28. Overall project sustainability is rated likely. China's commitment to addressing long-term improvements of basic urban infrastructure is reflected in government policy and the Five-Year Plan. Similarly, Jilin Province and Changchun Municipality have a vital interest in providing sufficient quantity and quality of water to the more than two million people and to the burgeoning industrial sector in the water-scarce urban area of Changchun. But the investments put into place under the project increase recurrent costs and will in the future also require substantial replacement investments. This may pose a potential problem only if the utilities are not permitted to operate more independently and to raise tariffs in a prudent manner. While there is less concern about water supply tariff adjustments, the Government has been reluctant to charge users the full cost for sewage collection and treatment services. 29. Under the project both utility companies received substantial amounts of technical assistance and training to install appropriate management control systems to properly monitor operational efficiency. To this end, a major restructuring of CWSC resulted in an improved organizational structure and a host of cost-cutting measures including a cutback of 400 employees. The Water Treatment Plant No. 3 built under the project exhibits the  - 10- lowest operating costs among the four treatment plants in the city. With the assistance of international consultants, a Report on Organization and Responsibilities was prepared, which could form the basis for CSC to strengthen its structure and functions in order to become a more autonomous, effective and efficient entity. E. IDA PERFORMANCE 30. IDA's performance during identification was satisfactory. IDA insisted on a comprehensive project concept encompassing water supply and wastewater treatment. As the involved project agencies and the two utilities had limited project experience, IDA focused correctly on strengthening the participating institutions, developing the required training programs and bringing in the necessary design/construction and management support consultants. However, IDA's performance during the preparation and appraisal phases of the project was deficient. If more attention would have been given to project readiness through a more rigorous review of the design quality of the individual components, the need for the inordinate amount of design revisions during implementation and for the excessive number of change orders could have been reduced. While IDA correctly anticipated the technical assistance needs, in light of the encountered procurement problems, it may have underestimated the need to provide sufficient information and training opportunities concerning World Bank Group procurement procedures. IDA succeeded in sensitizing the local authorities about the harmful consequences of industrial and residential water pollution. And, although the wastewater treatment facility was not funded by IDA, the municipal government is reported to have been successful in finding financial resources to complete this project on its own by the end of 2000. Moreover, it wishes to upgrade the treatment from a primary to a secondary process, exceeding the requirement under the project. 31. IDA's performance during the early stages of project implementation was also deficient. Because of the project entities' lack of experience with large, internationally funded infrastructure projects, a high level of project supervision by IDA was anticipated over the life of the project. The SAR projected a total of 11 missions with 70 staff-weeks in the field and 25 staff-weeks at headquarters for progress review. The actual number of missions carried out from 1993 to the end of 1998 closely matched the projections. However, the actual weeks used overall amounted to only 86 staff-weeks, of which only 18 staff-weeks were used in the field, far below the originally expected level of 70 staff- weeks. The mission frequency was in accordance with the twice-per-year foreseen schedule. Unfortunately, an almost one-year gap between missions occurred from April 1996 to March 1997, a very difficult period of project implementation during which major implementation delays and unsatisfactory financial covenant compliance were experienced. Over the project period, there were three changes of task managers whose project evaluation criteria showed marked differences depending on their specialization. A review of the supervision reports prepared by IDA missions reveals that up to March 1997 there was almost no indication of the difficulties the project was having. In fact, the project was consistently given very high performance ratings. In general, World Bank Group policies and procedures were consistently applied with some flexibility where justified. Misunderstandings between IDA and the Borrower did occur, especially concerning IDA's instruction that a unit price contract should be used for the Water  - 11 - Treatment Plant No. 3 because of its size and complexity, whereas the Borrower misinterpreted this instruction to be applied to all future contracts under the project. While supervision frequency and quality improved in the latter stages of the project, IDA's performance rating for the full supervision project period is rated unsatisfactory. In its contribution to the ICR (see Section 3 of Annex B), the Borrower states that the project could have benefited from better understanding and better communication between the PMO and IDA. The Borrower was particularly critical of IDA's staff changes and IDA's protracted and sometimes inflexible procurement review process. F. BORROWER PERFORMANCE 32. As indicated earlier, the Borrower's commitment to the physical objectives of the project remained strong during project implementation. Counterpart funding, for example, was never a major problem. However, the Borrower's performance was generally unsatisfactory in the preparation phase of the project as design work was often not detailed enough and some of the geological and hydrologic work was inadequate. During the actual implementation of the project, there were startup problems caused by (a) the delay of appointing experienced project managers to the PMO which impeded its effectiveness; (b) delayed design finalization; and (c) delayed preparation of procurement documentation. By 1994, the Changchun Municipality had strengthened the PMO, but could not fully resolve the other project obstacles, such as establishing a constructive relationships with the water utility company and increasing the support of the management consultants from a mere advisory role. Although some parts of the project were implemented with great urgency and even ahead of the originally expected time schedule, e.g., the Water Treatment Plant No. 3, by 1997 procurement and disbursement problems became increasingly serious with some of the components experiencing up to two years of completion delay. Consequently, PMO's performance was no longer considered satisfactory. The unfortunate misprocurement of two major contracts resulting in a Credit cancellation of about SDR 19.9 million (equivalent to about $26.9 million) confirned this evaluation. This incident and the many change orders submitted to IDA without providing advance notification of the often considerable design changes, raised questions as to whether the PMO saw IDA as a partner in the project. 33. Likewise, the agencies failed to a certain degree to take full advantage of their expert consultants by not soliciting their views freely and incorporating them into their decision-making process. International consultants were involved in design preparation during project preparation and design review during project implementation. They also played a role in contract management and construction supervision. However, their services was more of an advisory role, often only incidental and ad hoc. This raises the question whether the consultant firm should have taken a more active part in the project, especially when they realized that project performance had become unsatisfactory. 34. Project performance on the water supply side was impeded by a lack of cooperation between the PMO and the CWSC. Further constraining factors were the considerable quality differences between the contractors who often had insufficient experience in large infrastructure projects, and the large number of supervising companies which occasionally failed to apply consistent and proper standards of quality  - 12 - control. Project reporting improved over the implementation period, but rarely highlighted potential problems or sought ex-ante IDA's assistance. Audit reports were submitted in a timely fashion and in a manner consistent with other World Bank Group projects in China. The Borrower's compliance with covenants was deficient. In particular, the Borrower has not met the financial covenants concerning sewer charges as it prefers to first construct the wastewater treatment plant before instituting sewerage tariffs. In addition, the substantial procurement problems in the project contributed to this rating. It should be noted, however, that the Borrower, although recognizing these shortcomings, felt that the performance of its PMO was in general acceptable. G. ASSESSMENT OF OUTCOME 35. Overall, the assessment of outcome is rated unsatisfactory. Insofar as the water supply part of the project is concerned, the project has achieved the expected development results although the water treatment plant may have been overdimensioned and the quality of construction work could have been better. The project did help to improve the water supply in Changchun to meet the initially expected domestic needs of the urban population and support industrial growth. The water tariffs have been adjusted to improve the financial situation of CWSC. Problems in construction quality may, over the long run, lead to higher than normal operating and maintenance costs. 36. However, the project did not achieve its objectives concerning wastewater pollution because of the more than four-year delay in completing the wastewater treatment plant compared to the original project implementation schedule and the Borrower's failure to properly adjust sewerage tariffs as covenanted. As mentioned above, central government funding reportedly has been made available to complete the wastewater treatment facility by the end of 2000. On the positive side, it should be mentioned that the municipal authorities have expressed interest in upgrading the treatment process from the one included in the project. Because the IDA Credit has closed, neither design changes nor construction supervision will have the benefit of IDA's or the management consultants' review and comments. Despite the failure to complete the wastewater treatment plant during the project implementation period, the project did have a positive effect on the city's industrial and domestic pollution situation by virtue of the construction of a 10 km interceptor sewer pipeline. In a broader sense, the city also benefited from the project by gaining considerable experience in carrying out large infrastructure projects and by learning how to deal with foreign suppliers, contractors, consultants and international financial institutions. 37. The extremely low utilization of technical assistance funds underscores the limited commitment by the project agencies to institutional development and the subsequent disappointing achievements. A qualitative assessment of the technical assistance program revealed poor follow-up and low utilization of the techniques learned by the trainees, such as in the distribution optimization plans and in GIS applications. The project's financial objectives were only partially achieved. Water supply tariffs were increased four times during project implementation. However, CSC has not been able to institute sewerage tariffs for residential users and those charged to industrial customers remain inadequately low, causing the company in 1997 to incur operating losses three  -13 - times the size of its operating income. In addition, as of December 1, 1999, none of the project assets had officially been transferred from the PMO to the operating utilities. H. FUTURE OPERATIONS 38. Changchun Water Supply. CWSC and the Northeast Municipal Engineering Design Institute have developed a Water Master Plan for Changchun Municipality. They show a further increase in Changchun's urban population and an increase in the service factor of population served with treated water, reaching from 90 percent in 1993 to 100 percent by 2020. Simultaneously, water consumption per capita is forecast to slow, probably as a result of water conservation measures. Overall, the maximum daily total water demand in the year 2010 would be over 20 percent below the level expected in the SAR. Similarly, the future industrial water demand is now projected to be less than originally projected mainly because of slower growth rates of the major industries located in Changchun and higher expected water recycling rates. Unaccounted-for water losses are also expected to improve significantly from the present rate of 22 to 25 percent as a result of the extensive training provided by the international experts. These projections indicate that the existing water supply plants and the new water supply facilities, Water Treatment Plant Nos. 3 and 4, most likely will meet the water demand for a longer-than- originally-expected time period. Operational plans for CWSC show that the company is well prepared for managing its operations. Through technical assistance provided under the project, long-term, computerized operational planning systems were developed that provided CWSC with excellent management tools. In addition, extensive training programs provided for senior leadership, mid-level managers and operators should help the company to become a stronger and more efficient organization. CWSC restructured its organization in the second half of 1997 by making it more transparent and easier to manage. It has reduced staff from 3,800 to 3,400, simplified its organizational structure, improved its investment planning capabilities, and increased operational efficiency with the help of computers. The company is committed to carefully monitoring and controlling its operating costs and capital expenditure program. In particular, it plans to make further improvements to the city's water distribution system, 400 km of which, built by the Japanese, are more than 50 years old. Also, a second raw water supply pipeline from the Majia pumping station is on the drawing board. The company's financial outlook remains positive as long as adequate tariff increases are approved by the Government. 39. Changchun Sewerage and Wastewater Treatment. CSC was established only in 1992 with the responsibility to collect and treat storm drainage and sanitary sewage. The municipal government approved the transfer of the sewage network assets to CSC in 1993, but it appears that the sewage network and the four pumping stations continue to be operated by the six district governments. At the request of the municipal government, the transfer of the sewer interceptor pipeline will be delayed until after the completion of the new wastewater treatment plant, expected by the end of 2000. Until this new facility is built and adequate tariffs for its services are approved by the provincial government, CSC is likely to remain a small operation. Under the project, the company has received technical assistance to improve its management, operations and maintenance capabilities and should be in reasonable position to assume increased responsibilities in the future. The technical assistance program included training of the company's technical staff as  - 14 - well as its higher and middle management and, in addition, comprised discrete tasks such as the development of a computerized accounting and forecasting system; upgrading of the company's maintenance system; development of a database, pretreatment criteria and monitoring system for industrial waste management; training in GIS application for the sewage collection system; improvement of a wastewater flow monitoring system; and preparation of a plan to inspect, rehabilitate and maintain the collection system. 40. In a "Report on Organization and Responsibilities" prepared in 1998 with the assistance of the management consultants, CSC lays out an operational plan on how it intends to meet its future, substantially increased responsibilities after the waste treatment plant has been built and all responsibilities for the sewage network and the pumping stations have been transferred to the company. At that time, CSC will increase its work force by an additional 500 staff. Over the longer term, CSC has plans to build yet another wastewVater treatment plant in the western part of the city and substantially upgrade the city's sewer network, most of which was built in the 1930s. The critical key to its future successful operation and expansion will not only be the management capabilities of the company's senior staff, but to an equally important degree the consent by all involved parties that these ambitious plans can only be realized if (a) sewage user charges are adjusted to properly reflect operational needs and financial costs and (b) the government as well as domestic and foreign lenders provide the necessary funding for the desired additional capital investments. Judging from past experience, doubts are warranted as to whether these plans are realistic. I. KEY LESSONS LEARNED 41. Key lessons learned from the implementation of the project include: Project Preparation (a) Design institutes for major civil works projects should be selected on the basis of relevant experience and not be limited to those institutes that happen to operate in the same city or province. Local design institutes should only be appointed if they have the necessary background and project design expertise. The selection review should carefully assess the financial strength of these entities, proficiency of their engineers and operating resources. In order to improve efficiency, oversight and leverage, the number of design institutes should be kept to a manageable level. The design fees set by the government may be too low to attract and provide adequate services. (b) The accuracy of final designs should be assured using, inter alia, actual soil conditions based on comprehensive geological and hydrologic surveys and other relevant documents. This would avoid costly design modifications, implementation delays and expensive change orders. Significant problems in this regard occurred with the Majia pumping station (excessive groundwater; differing soil conditions of the auxiliary structure, boiler house and chimney structure); Dashuihe pumping station (differing soil condition of pump house and auxiliary structure; changed road; inadequate water for boiler house; inaccurate elevations;  - 15 - site material different for switch room); Laoyeling tunnel (differing rock formation; excessive groundwater); and the wastewater interceptor (differing soil conditions). (c) Preliminary and final designs should be reviewed by experienced consultants, if necessary by an international team of experts. (d) End-users, e.g. the project utilities, should be involved at the preparation stage to obtain their input and consent not only to ensure ownership commitment, but also to reduce change orders during the construction period and plant modification expenses during the operating phase of the project. (e) The project management office should be set up with qualified personnel and fully operational prior to project implementation. (f) The need for strict compliance with the World Bank Group's procurement guidelines should be emphasized to all parties-project management personnel, the involved utilities, design institutes, contractors and supervision companies. To this end, ample training and follow-up training should be provided. Project Implementation (a) An unmanageable number of supervision companies should be avoided. As the concept of supervision companies is relatively new in China, particular attention should be paid to their past experience with similar projects in terms of project quantity and complexity. If needed, additional training should be provided and construction management consultants should periodically review their performance. (b) Design and construction consultants should in large and complex projects be involved in detailed review of design and project implementation. An only limited (functional) role can be justified only if the borrower has adequate expertise. If indicated, as it would have been in this project, there should be full-time representation of the construction consultant, including a permanent resident engineer for the full implementation period, in order to monitor construction quality, to dispense appropriate advice and to review change orders as they are initiated. (c) Management consultants should, until sufficient experience is acquired by the local project management staff, participate in the decision-making process concerning project matters. (d) Training programs should be tailor-made for China to ensure effectiveness. The persons to be trained should be those who actually carry out the work in the respective fields. Senior managers do not always pass on their knowledge to junior staff.  - 16 - (e) Clear communication between the World Bank Group and the borrower with appropriate confirmation and follow-up during supervision missions can avoid costly mistakes, especially concerning procurement matters. (f) A project should be nominated as a "demonstration project" only after it has been completed and proven to meet or exceed expectations, not at the time of preparation. Financial Performance (a) In order to properly determine the size of a project and its long-term - sustainability, it is essential that realistic demand projections for infrastructure services be developed.  - 17 - PART II: STATISTICAL TABLES TABLE 1: SUMMARY OF ASSESSMENTS A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic Policies Sector Policies v Financial Objectives V/ Institutional Development V Physical Objectives V Poverty Reduction V Gender Issues V Other Social Objectives V Environmental Objectives V/ Public Sector Management V Private Sector Development V Other (specify) V Overall , B. Project Sustainability Likely Unlikely Uncertain Water Supply ' Wastewater v Hazardous Waste V Overall V C. IDA Performance Highly Satisfactory Satisfactory Deficient Identification V Preparation Assistance V Appraisal V Supervision V D. Borrower Performance Highly Satisfactory Satisfactory Deficient Preparation V Implementation V Covenant Compliance V E. Assessment of Outcome Highly Satisfactory Unsatisfactory Highly Satisfactory Unsatisfactory Water Supply Component V/ Waste Water Component V Other Components, incl. TA V Overall V  - 18 - TABLE 2: RELATED BANK LOANS AND IDA CREDITS Loan/credit title Purpose Year of Status Approval l Medium-Sized Cities 1) To improve overall city planning FY91 Completed/ Development Project (Cr. 2201 - including across and within sectors; Closed CHA/Ln. 3286-CHA) 2) To increase efficiency in the utilization and management of existing facilities; 3) To strengthen resource mobilization; 4) To support expansion of economic activity; and 5) To promote prudent management of environmental resources. Liaoning Urban Infrastructure 1) To improve water supply conditions in FY92 Completed/ Project (Cr. 2219-CHA) three project cities through physical works Closed and strengthening of institutions, regula- tions, management, financial and pricing policies; 2) To improve traffic and public transport conditions in Shenyang through a pilot program of selected low-cost physical works and institutional strengthening; and 3) To improve measures for water pollution abatement through technical assistance in wastewater treatment, and strengthening of institutions and enforcement measures for water pollution control. Liaoning Environmental Project 1) Protect main water resources in Liaoning FY95 Under (Ln. 3781-CHA) Province; implementation 2) Strengthen pricing policy and institutional management for environmental protection, water pollution control, wastewater, and solid waste; and 3) Institute measures for air pollution control and cultural heritage asset management. Shandong Urban Environment 1) To strengthen policies, regulations and FY98 Under Project (Ln. 4237-CHA) institutional arrangements for municipal implementation water, wastewater, and district heating, and environmental pollution prevention and control; 2) Expand surface water supply to Jinan to prevent further depletion of groundwater aquifers; 3) Facilitate sustainable management of investments in pollution control and munici- pally provided urban environmental services; and 4) Arrange for updating the information database with respect to water quality and management in Xiaoqing River Basin.  - 19 - TABLE 3: PROJECT TIMETABLE Steps in Project Cycle Date Planned Date Actual Identification December 1988 January 1989 Preparation March 1989 October 1991 Appraisal February 1992 May 17, 1992 Negotiations October/November 1992 December 7, 1992 Board Presentation January 1993 February 9, 1993 Signing February 1993 March 18, 1993 Effectiveness April 1993 September 9, 1993 Credit Closing December 31, 1998 June 30, 1999 TABLE 4: CREDIT DISBURSEMENT: CUMULATIVE ESTIMATED AND ACTUAL (in $ Million) Fiscal Years 1993 1994 1995 1996 1997 1998 1999 2000 Appraisal Estimate 7.2 29.2 61.2 91.2 105.2 116.2 120.0 120.0 Actual 0 7.0 10.8 35.0 56.0 69.7 81.5 83.5 Actual as % of Estimate 0 24 18 38 53 60 68 70 Date of Final Disbursement - December 7, 1999  - 20 - Table 5: Key Indicators for Project Implementation Indicators Planned at Appraisal Actual Total Average Raw Water Demand (m3/d) 1,234,000 995,000 Water Supply Capacity (m3/d) 794,000 755,000 Water Transmission Intake Pumping Station: Year of Completion 1996 1998 Laoyeling Tunnel: Year of Completion 1996 1998 Pipelines: Total Length (in km) 7.9 8.4 Year of Completion 1997 1998 Urban Water Supply Pumping Stations and Pipelines: Year of Completion 1997 1998 Water Treatment Plant: Capacity (m3/d) 220,000 220,000 Year of Completion 1996 1997 Urban Distribution Network: Year of Completion 1997 1998 Wastewater Components Trunk Interceptor Sewer Total Length (in km) 10.4 11.0 Year of Completion 1997 1998 Wastewater Treatment Plant Capacity (m3/d) 390,000 N/A Year of Completion 1997 2000* Water Tariff in 1998 (in Yuan/m3) 0.79 1.86 Sewerage Tariff in 1998 (in Yuan/m3) 0.40 Not established Communication Systems Year of Completion 1997 1998 Power Supply Year of Completion 1995 1998 Toxic & Hazardous Waste Management and Industrial Relocation Study Date of Completion Dec. 31, 1995 October 1998 Program for Computerized Planning & Forecasting Date of Completion Dec. 31, 1994 1997 New Computerized Billing System Date of Completion Dec. 31, 1994 1997 Institutional Set-Up of CWSC Date of Completion Dec. 31, 1993 1998 Institutional Set-Up of CSC Date of Completion Dec.31, 1993 2000* Increased Staffing of CSC Date of Completion January 1997 2000* * Estimate  - 21 - TABLE 6: KEY INDICATORS FOR PROJECT OPERATION 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Population (OOOs) Actual 1,665 1,694 1,741 1,862 1,902 1,943 Projected at Appraisal 1,815 1,842 1,870 1,898 1,926 1,955 1,985 2,014 2,045 2,059 2,089 Estimated at Closing 2,040 2,100 2.150 2,230 2,320 Changchun Water Supply Company Average Daily Water Supply (OOOs/rn3) Actual 456 479 506 514 548 593 Projected at Appraisal 390 395 410 410 410 795 795 795 Estimated at Closing 755 810 880 950 1,040 Total Water Sales (Million m3/y) Actual 174 183 194 195 205 220 Projected at Appraisal* 60 108 108 108 107 229 259 266 271 282 Estimated at Closing 234 250 266 281 295 Changchun Sewerage Company Population Served (OOOs) Actual 833 932 1,045 1,210 1,331 1,554 Projected at Appraisal * Estimated at Closing 1,632 1,790 1,830 1,900 1,970 Total Wastewater (000 m3/d) Actual 365 383 405 411 438 474 Projected at Appraisal* 653 805 Estimated at Closing 680 729 792 855 936 Total Sewer Length (km) Actual 949 972 994 1,004 1,014 1,020 Projected at Appraisal* Estimated at Closing 1,025 1,030 1,035 1,040 1,045 Total Gross Revenues (Y Million) Actual 4.6 4.9 5.1 5.3 Projected at Appraisal* 69.6 72.3 74.2 Estimated at Closing 6.1 6.4 52.1 56.5 61.4 * Information available only for the years shown.  - 22 - TABLE 7: STUDIES INCLUDED IN PROJECT No. Title Conducted By Impact 1. Toxic/Hazardous Waste International consultants (IC), Satisfactory, but implementation Management and Industrial Park Project Management Office of recommendations is uncertain. Study 2. Water Resource Optimization Changchun Water Supply Co., Satisfactory and useful. Study Domestic Design Institute, IC 3. Changchun Sewerage Company: Changchun Sewerage Co., Satisfactory. Implementation Report on Organization and Project Management Office, IC awaits completion of WWTP. Responsibilities 4. Construction Inspection Final IC Satisfactory. Report 5. Construction Cost Review Project Management Office, Satisfactory. Report IC/Domestic 6. Changchun Water Master Plan Domestic Design Institute, Satisfactory and useful for future Changchun Water Supply Co., water demand projections and _Project Management Office, IC investments. Note: All studies were completed at time of Credit closing. TABLE 8A: PROJECT COSTS (in $ million) Appraisal Estimate Latest Estimate(12/15/99) Item Local Foreign Total Local Foreign Total Water Transmission 36.0 44.5 80.5 62.0 26.5 88.5 Urban Water Supply 34.2 36.1 70.3 32.6 51.2 83.8 Sewage Collection/Treatment 20.3 16.2 36.5 45.8 3.4 49.2 Technical Assistance 6.3 6.5 12.8 0.9 2.2 3.1 Total Base Cost 96.8 103.3 200.1 Contingencies 29.5 21.8 51.3 Total Project Cost 126.3 125.1 251.4* 141.3 83.3 224.6 * Excluding interest during construction.  - 23 - TABLE 8B: PROJECT COSTS (in Y million) Appraisal Estimate Latest Estimate (12115/99) Item Local Foreign Total Local Foreign Total Water Transmission 198 244 442 514.8 220.0 734.8 Urban Water Supply 187 198 385 270.7 425.2 695.9 Sewage Collection/Treatment 111 89 200 379.7 28.3 408.0 Technical Assistance 34 36 70 7.4 18.6 26.0 Total Base Cost 530 567 1,097 Contingencies 160 120 280 Total Project Cost 690 687 1,377* 1,172.6 692.1 1,864.7 * Excluding interest during construction. TABLE 8C: PROJECT FINANCING (in $ million) Appraisal Estimate Latest Estimate (12/15/99) Source Local Foreign Total Local Foreign Total Domestic Contribution 141.2 5.1 146.3 141.3 141.3 GOC 25.5 5.1 30.6 45.5 45.5 Jilin Province 54.7 54.7 4.8 4.8 Changchun Municipality 61.0 61.0 91.0 91.0 IDA 0.0 120.0 120.0 83.3 83.3 Total 141.2 125.1 266.3 141.3 83.3 224.6 TABLE 9: ECONOMIC EVALUATION Estimates at Estimates at Appraisal Completion Water Supply Component (75.4% of Total Project Costs) 11.3% 12.6% Sewerage Component (18.2% of Total Project Costs) 22.8% N/A* Combined Economic Rate of Return 13.3% N/A* * No estimates concerning delayed WWTP available.  - 24 - TABLE 10: STATUS OF LEGAL COVENANTS Agreement Section Covenant Present Description of Covenant Comments Type Status Credit 4.10 01 C Ministry of Finance to fumish IDA not later than six months after the end of each year the auditor's report accounts of the withdrawals from the Credit Account and Special Account. Changchun I Credit 3.1 0(b) 01 C Changchun to fumish IDA not later than six months after the end of each year, the audit report of the records and accounts reaffirming the parts C, D.2 and E of the project. Credit 3.03(a) 02 CP Changchun should eliminate all commercial, domestic Sewerage fees not yet and other exemptions from water and sewerage implemented. charges by completion of project. Credit Sched. 2, 09 CD Changchun shall provide to IDA a report on Complied with after delay. Part A3 inspection, maintenance and operation arrangements for the Shitoukoumen Reservoir dam. Project Sched.2, 06 CD Changchun to carry out a study on (a) hazardous and Complied with after delay. Part C.2 toxic waste management; and (b) industrial relocation. Credit 3.03 (c) 10 CD Changchun shall transfer ownership of all public sewei Complied with after delay. assets. CWSC/CSC Project 2.08 (b) 10 C CWSC to enter into a contract with Jilin Province to (a) ensure that water is made available at appropriate prices and quantities from the Xin Licheng Reservoir; and (b) provide a report on inspection, maintenance and operation arrangements of the Xin Licheng Reservoir dam. Project 3.04 (a) 05 C CWSC and CSC to hire consultants to assist in Services of consultants were improving their management and operations. not fully utilized. Project 3.04 (b) 05 C CWSC and CSC to provide IDA with action plan to improve management and operations. Project 3.04 (d) 09 C CWSC and CSC to submit semiannual reports on achieving progress under action plan (see 3.04(b)). Project 3.05 10 CD CWSC and CSC to implement (a) computerized Delayed due to late start of planning, billing and collection fees; (b) a managemen consultants. information system. Project 4.01(b.ii) 01 C CWSC and CSC to fumish IDA not later than six months after the end of the year, the audit reports and certified copies of their accounts. Project 4.04 (a) 02 NC CWSC and CSC to produce for each of their fiscal Water financial covenant years (after 1993) total revenue not less than total only partially complied operating expenses; plus an amount for debt services with; wastewater financial requirements or provision for depreciation, whichever covenant not complied with. is higher. Project 4.04 (b) 09 CD CWSC and CSC to produce revenue forecasts for the Complied with after delay. next fiscal year before September I of each year and take measure to meet requirements. Project 4.05 02 CD CWSC to increase water tariffs. Tariffs were increased after delay, but increases not always adequate to meet financial covenant. Covenant Class: Status: I = Accounts/audits 8 = Indigenous people C = covenant complied wth 2 = Financial performance/revenue 9 = Monitoring, review, and reporting CD = complied with after delay generation from beneficiaries 10 = Project implementation not CP = complied with partially 3 = Flow and utilization of project covered by categories 1-9 NYD= not yet due funds 11 = Sectoral or cross-sectoral NC = not complied with 4 = Counterpart funding budgetary or other resources 5 = Management aspects of the allocation project or executing agency 12 = Sectoral or cross-sectoral policy/ 6 = Environmental covenants regulatory/institutional action 7 = Involuntary resettlement 13 = Other  - 25 - TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS There was significant lack of compliance with the procurement directives of the World Bank Operational Manual Statements which led to misprocurement as described in para. 27 of this report. TABLE 12A: IDA RESOURCES: STAFF INPUTS (ACTUAL STAFF-WEEKS) Stage/Fiscal Years 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000* Total Preparation to Appraisal 13.6 25.7 15.5 28.2 83.0 Appraisal 5.4 30.7 36.1 Negotiation to Board 10.6 10.6 Presentation Supervision 13.6 7.8 13.1 15.4 9.6 14.6 9.9 1.5 85.5 Completion 2.6 6.9 9.5 Total 13.6 25.7 15.5 33.6 54.9 7.8 13.1 15.4 9.6 14.6 12.5 8.4 224.7 * Estimate TABLE 1211: IDA RESOURCES: STAFF INPUTS (ACTUAL $'000) Stage/Fiscal Years 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000* Total Preparation to Appraisal 39.8 79.6 44.1 83.0 246.5 Appraisal 16.3 93.8 110.1 Negotiation to Board 36.4 36.4 Presentation Supervision 45.9 25.7 33.4 39.9 33.3 54.8 26.4 6.0 265.4 Completion 13.6 20.7 34.3 Total 39.8 79.6 44.1 99.3 176.1 25.7 33.4 39.9 33.3 54.8 40.0 26.7 692.7 * Estimate  - 26 - TABLE 13: IDA RESOURCES: MISSIONS Performance rating Specialized Imple- Devel- Stage of project cycle Month/ Number of Days staff skills mentation opment year persons in field represented /a status /b objectives Preidentification 12/88 1 3 SE Identification 4/89 3 6 SE, FA Preparation 10/89 4 10 SE, FA Preparation 4/90 1 1 SE Preparation 5/90 2 5 SE Preparation 11/90 5 8 SE, FA, US Preappraisal 10/91 9 16 SE. FA. US, PS Post Preappraisal 2/92 2 11 SE Appraisal 5/92 9 17 SE, FA, US Post Appraisal 10/92 3 5 SE Supervision 1 5/93 4 10 US, SE I I Supervision 2 10/93 2 3 SE I I Supervision 3 3/94 3 4 SE, FA I I Supervision 4 12/94 2 3 OA, SE I I Supervision 5 8/95 2 6 FA, SE 2 2 Supervision 6 4/96 3 4 FA, SE, RS 2 2 Supervision 7 3/97 3 5 FA, SE, PM 3 2 Supervision 8 9/97 5 7 SE, FA, PM, PS 3 3 Supervision 9 6/98 2 5 SE, PM 3 3 Supervision 10/Completion 9/98 3 7 SE, FA, PM N/R N/R /a SE: Sanitation Engineer/Water Engineer; US: Urban Specialist; OA: Operations Analyst; FA: Financial Analyst; PS: Procurement Specialist; RS: Resettlement Specialist; PM: Project Management Specialist. /b 1: Highly satisfactory; 2: Satisfactory; 3: Unsatisfactory N/R Not Rated  - 27 - Annex A ANNEX A: ICR MISSION'S AIDE-MEMOIRE September 23-30, 1998 A. Introduction 1. A mission composed of Messrs. Herbert Boehm and Zhang Zhun visited Jilin Province between September 23 and 30, 1998 to carry out the implementation completion mission of the Changchun Water Supply and Environmental Project. Mr. Wiebe Moes (EASUR), Task Manager for this project, participated in the mission from September 23 to 25, 1998 and at the same time carried out a partial supervision mission of this project. In two field visits, the ICR mission reviewed the status of several major parts of the Urban Water Supply component in Changchun (Water Treatment Plant No. 3 and Zhengyang network pumping station) and the Water Transmission component (Majia pumping station and Dashuihe pumping station). 2. The mission would like to express its gratitude to the Project Office and other authorities for the excellent arrangements for the mission's program and the courtesies extended. This Aide-Memoire summarizes the mission's findings and confirms the agreements reached with the authorities concerning the preparation of the Borrower's contribution to the ICR. B. Borrower's Review of Implementation Performance 3. The closing date of the IDA Credit is December 31, 1998. To ensure that preparatory work for the implementation completion report is commenced well in advance of that date, this mission was fielded to ensure that IDA obtain all necessary data and information and to give the Project Management Office (PMO) sufficient time to prepare their contribution to the ICR exercise. To this end, the mission states with satisfaction that a team within the Planning Department of the PMO, headed by its director, has been organized to oversee the Borrower's ICR responsibilities. 4. In addition, a "Construction Cost Review Report" has been drafted by the PMO in collaboration with the external management consultant firmn which to a large degree could form the basis for the Borrower's own final evaluation report on the project (see para. 5). As there were disagreements on certain issues about this draft report on the Chinese side as well as between the PMO and their consultants, who were the main authors of the report, the PMO promised to revise the draft report and submit it to IDA by mid-October. 5. The mission briefed the involved project agencies in detail about the Borrower's responsibilities in the ICR preparation. In particular, it was emphasized that the Borrower's own final evaluation report must include (i) an assessment of the project objectives, design, implementation, and operational experience; (ii) an evaluation of the Borrower's own performance during the evolution and implementation of the project, with special emphasis on lessons learned; and (iii) an evaluation of the performance of IDA during the evolution and implementation of the project, again with special emphasis on lessons learned. The PMO indicated that they would expect to have a first draft of  -28 - Annex A their ICR contribution ready by the end of October. Furthermore, the mission discussed the requirements for the preparation of an operational plan after the project has been put into operation. This requirement concerns primarily the Changchun Sewage Company (CSC), as the other entities under the project are well-established entities with adequate operational controls. As requested by previous IDA supervision missions, CSC has prepared a draft report on organization and responsibilities to satisfy this requirement. This report was reviewed by the mission and its comments will be incorporated in a revised version of the report which will be submitted to IDA by the end of November 1998. C. IDA's Review of Project Design and Implementation 6. In order to assess to what degree the project has achieved its original project objectives and to assess the prospects for the project's future success or failure during its operational phase, the mission held extensive discussions with the PMO and all other relevant project agencies and the project's external consultants. They included staff of the PMO, Changchun Water Supply Company (CWSC), CSC, Environmental Protection Bureau, Municipal Finance Bureau, Municipal Planning Commission, Jilin Hydraulic Power and Design Institute, Changchun Civil Engineering Design Institute, Northeast Civil Engineering Design and Research Institute, and several supervision companies. 7. The mission benefited from a number of reports, although several of them were still in draft version: the Construction Cost Review Report; the Progress Report for the Third Quarter of Year 1998; the CSC Report on Organization and Responsibilities; the Progress Report of April 1, 1998; the Construction Inspection Final Report; and the Toxic/Hazardous Waste Management and Industrial Park Study. 8. The mission's discussions with the authorities focussed on the status of the project, current and anticipated problems and issues and lessons learned from the project. As there may be a separate procurement audit carried out by IDA with special focus on the large number of change orders, procurement issues were dealt with only to the extent that they could impact the achievement of project objectives. The results of the procurement audit will be incorporated into the ICR. The findings of the procurement audit are expected to be available by the end of November 1998. 9. Key implementation indicators for the project were submitted and discussed by the mission and the PMO arranged for the completion of the tables before the mission's departure. In addition, performance indicators as part of the operational plan were prepared by CWSC and CSC on a draft basis. It was agreed that these indicators will have to be refined as part of the Borrower's ICR contribution. D. Project Funding 10. Since IDA had canceled the wastewater treatment project and the Majia to Dashuihe raw water transmission pipelines, with a total contract value of Y 350 million, the municipal government had to fund the work done to date fully on their own, i.e., about RMB 30 million. Moreover, the PMO has paid the change order amounts (about $5 million) before they were submitted to IDA for review and approval. Consequently, the  - 29 - Annex A PMO reported problems with financing the completion of a number of contracts, e.g., on the Majia and the Dashuihe pumping stations.  - 30 - ANNEX B ANNEX B: BORROWER'S CONTRIBUTION TO THE ICR Introduction. Changchun Water Supply and Environmental Project is the first World Bank loan project of Changchun Municipal Government of PRC for infrastructure construction. The Project was approved by the State Planning Commission to be started on Oct. 29, 1993. The planned date of completion is Dec. 31, 1997. The Credit agreement took effect on Sept. 18, 1993, and Credit closing date is Dec. 31, 1998. The Credit closing date was postponed to June 30, 1999 by the World Bank in May 1999. 1. Assessment of Performance of the PMO 1.1 Project Objectives Improve water supply in Changchun Municipality to meet the domestic needs of the urban population and to support industrial growth. Reduce industrial and domestic water pollution through physical works. Strengthening of institutions, developments in operation management, and changes in pricing policy. 1.2. Scope of the Project The project consists of three parts: (a) Construction of a raw water transmission pipeline to convey water from the Second Songhua River at Majia to Changchun via the Shitoukoumen Reservoir; construction of pumping stations, expansion and improvement of urban water treatment facilities; and expansion of the capacity of the water distribution system; (b) Construction of a trunk interceptor sewer and a primary sewage treatment plant, and procurement of equipment and instruments for environmental quality monitoring and control; and (c) Technical assistance for design and construction supervision, management support to the water and sewerage companies including the preparation of staff training programs, and implementation of a hazardous waste study. 1.3 Assessment of Project Design * The purpose of the project design is to improve existing water supply, sewer collection and treatment system in Changchun City. * The design realizes diversion of 154,000,000 m3 water per year from the Songhua River to Shitoukoumen Reservoir of Changchun City. In the meantime, the project completion will make optimizing management of Shitoukoumen Reservoir and Xinlicheng Reservoir possible. After optimizing management, supply capacity of Shitoukoumen and Xinlicheng Reservoirs will increase from 462,500 m3/day to 600,000 m3/day, plus water withdrawn from Songhua River the total raw water source will be 1,050,000 m3/day (95% of the time). The project, therefore, abates water shortage in Changchun City. According to the new Water Master Plan prepared by the local consultants it could meet the raw water demands in 2001. * During the detail design, Tuanshanzi booster pumping station of the raw water transmission system and sewage lift pumping station were taken out from the project according to the suggestion of foreign consultants.  - 31- ANNEX B * In original design, raw water transmission system includes about ten-kilometer stretch of Chaluhe River to transfer raw water to Shitoukoumen Reservoir. As on both sides of Chaluhe River, paddy fields are going to enlarge, water losses are serious. To eliminate water losses, a pipeline with a length of 12.23 km has been installed during the construction period. * Due to the expansion of the city water distribution network (adding 67 km pipeline), the water supply has been improved especially in the previously low-pressure area. Nearly 300,000 people in the 30 km2 area have benefited from it. * The sewage interception trunks have intercepted the sewer discharged to the Yitong River. The surface water pollution has been efficiently controlled in the city area of the Yitong River. The water environment has been improved in the city area. * Changchun Municipal Government has improved the institution of CWSC and CWC, reformed the price of water supply to meet the financial covenant stipulated in the Credit Agreement. From 1996 onward, CWSC has made profits, it is helpful for improvement of management. Under the help of the municipal government, CSC has been set up and the assets of public sewer network were transferred to them. The Price Bureau of the Provincial Government approved the collection of a sewer tariff. This regulation will come into effect this year. 1.4 Project Implementation In the course of project construction, PMO was responsible to organize and manage the project implementation. Three sub-PMOs were established to be directly in charge of construction for raw water transmission, urban water supply and the wastewater project, respectively. The PMO reported to the Changchun Municipal Government as well as to the World Bank under the stipulated terms. The bidding and procurement progress, contract management, financial statement, technical assistance, project planning and schedule, etc. have been reported. Construction management mainly includes as follows: * Quality control: for each component, contractors have their own quality control system. Additionally, during construction, supervision engineers controlled starting and acceptance of each work procedure to guarantee works qualities. Quality control standard was strictly based on relevant government regulations, bidding documents, technical specifications, design requirements and so on. Priority attention was given to environment protection and safety. * Schedule control: Whole schedule was established according to the basic program of SAR. PMO has reported planning and actual schedule quarterly to the World Bank at the beginning of each quarter. Foreign experts have provided related software and examined the plan. Officers and experts of the World Bank also have come for field supervision at regular intervals and pointed out requirements and made comments. One part of the WTP No. 3 was completed a half-year in advance of the schedule stated in the contract. Control schedule of each single works was based on the construction organization plan approved by the PMO and supervision engineers according to the schedule in the contract.  - 32 - ANNEX B * Investment control: Investment was controlled by the PMO for the whole project. PMO takes responsibilities for reimbursement of funds from the World Bank, collection of local counterpart funds, overall investment planning, approving of change orders, providing price adjustment index issued by the relevant authority and approving of monthly payment certifications signed by engineers. The PMO developed the manual of supervision engineers in 1995. According to the manual, engineers review or prepare expenditure schedule on the basis of bidding documents, technical specifications, construction drawings and related documents. The engineers control contract cost by monthly payments. Foreign consultants gave instructions to the engineers and reviewed change orders. The World Bank has controlled investment too. They supervised and approved the contract cost, change orders and payments in different categories. * Information management: The files and information management of the project was carried out by the PMO. The information flow chart and requirements were clarified. * At present, all projects have been completed except the wastewater treatment plant. The transfer of assets is underway. 1.4.1 Raw Water Transmission System * An intake pumping station is set up at the Majia basin downstream of the Fengman Reservoir in Jilin City. Three sets of pumps have been installed with a lift head of 73m and a capacity of 2.8 m3/s and a motor of 2500 kW. * A pipeline with a length of 56 km, diameter of 2 m and 1.4 m (at the end of the pipeline) has been completed from Majia Pumping Station to Shitoukoumen Reservoir. The material of pipe is steel or prestressed reinforced concrete. - A tunnel with a length of 7.92 km and cross-section of 3.1x3.1 m has been built in the Laoyeling Ridge of Huanxi Town in Jilin City. The tunnel is based on gravity flow. - A booster pumping station is set up at Dashuihe. Three sets of pumps have been installed with a lift head of 43 m, capacity of 2.8 m3/s and a motor of 1400 kW. * The objective of an annual diversion of water of 154,000,000 m3 through the raw water transmission system has been realized. 1.4.2 Urban Water Supply System * An intake pumping station has been set up at Xinlicheng Reservoir of Changchun City. Four sets of pumps have been installed, each with a lift head of 60 m, capacity of 0.9 m3/s and a motor of 850 kW. The intake pumping station can supply 233,000 m3/day to WTP No.3. * Double pipelines were constructed with a length of 13.5 km and diameter of 1-1.2 m from Xinlicheng Reservoir to WTP No. 3. * A new water treatment plant No. 3 was constructed in the southwest of Changchun City. It can supply 220,000 m3/day of treated water to the city through water mains. The treated water quality meets the national criteria.  - 33 - ANNEX B * The Shitoukoumen pumping station has been expanded by an additional five pumps. The capacity of each pump is 0.85 m3/s with a lift head of 80 m and a motor of 780 kW. * A booster pumping station has been completed at Fangniugou midway between the Shitoukoumen Reservoir and the WTP No. 1. Five sets of pumps have been installed with a lift head of 62 m, capacity of 0.87 m3/s and a motor of 780 kW. * The pipeline from Shitoukoumen intake pumping station to Fangniugou booster pumping station has a length of 8.69 km and a diameter of 1.4-1.6 m. The pipeline from Fangniugou booster pumping station to WTP No. 1 has a length of 31.85 km and a diameter of 1.4-1.6 m. The pipe material is prestressed reinforced concrete. The pipeline can deliver 265,000 m3/day of raw water to WTP No. 1. Originally Xinlicheng Reservoir supplied raw water to WTP No. 1 through the Yitong River. * A pumping station has been built in WTP No. 1 to lift the raw water to the water treatment basins, which has a higher elevation than other water treatment basins. * Two pipelines with a total length of 22 km and a diameter of 1.0-1.2 m were installed to connect WTP No. 3 with the distribution network. - A Zhenyang booster pumping station was newly built to improve the water supply in the northwest region of the city. * Another 45 km pipeline has been constructed with a diameter of 900 mm and less in order to form the main ring and expansion of the distribution network. 1.4.3 Sewage Interception Trunk The sewage interception trunk is a rectangular culvert with a cross-section of 3.4x2.5 m and a length of 3.8 km at the down stream of the Yitong River. At the upstream of the river there are circle pipes with a total length of 7.8 km and a diameter from 1 m to 2.5 m. 1.4.4 Power Supply Built seven sets of substations and an additional 82 km 1 OkV and 6.6kV power transmission line. 1.4.5 Communication/SCADA Microwave stations, program-controlled telephone, radio communication lines and an 800 MHz trunk movable communication system have been installed. A SCADA system for water distribution network has been constructed. 1.5 Procurement Contract The bidding package was executed according to the SAR. There are four methods of procurement: (1) international competition bidding (2) national competition bidding (3) force account (4) direct purchase. Of the total 21 components, there were 12 components procured under international competition bidding (ICB) accounting for 80% of total investment; 8 components under NCB; and the power supply under force account. Direct purchase was used for small items.  - 34 - ANNEX B The PMO has worked together with an export/import procurement agency. This Company invited a procurement agency from Liaoning to provide assistance. Technical specifications were prepared by design institutes and reviewed by foreign consultants. Commercial terms were prepared by the procurement agency. Both of them needed to be reviewed by the World Bank. The purchase procedure completely followed the World Bank's guidelines. 1.6 Contract Management The contract management of the project was based on guidelines of the World Bank and the Ministry of Finance. The contract was managed by the supervision engineers according to the contract. In the course of implementation, each contract was managed within the technical and economic means. If any argument happened, supervision engineers reported to the contract leading group, which consisted of members from PMO, sub-PMO and supervision company. Change orders and claims generated in the course of implementation were dealt with according to the management procedures. In this project the amount of change orders was enormous especially in several components. 1.7 Technical Assistance According to the Credit Agreement, the PMO invited foreign consultants to provide technical assistance including three aspects: 1) technical assistance for design and construction supervision; 2) technical assistance for management improvement of CWSC and CSC; and 3) toxic and hazardous waste management and industry park plan study. At the request of the World Bank, the foreign counsultants input was increased during the period of project implementation. The PMO signed amendments for three contracts. A. Design and Construction Supervision Foreign consultant's services for design and construction supervision were performed according to the contract between the PMO and an U.S. consultant firm. Main services were: (a) Review of design criteria developed by the local design institutes and offering advanced technical information; (b) Technical input and review of the design packages; these were functional reviews and not detailed reviews; (c) Periodic site inspection of the construction; (d) Review of the design changes and construction schedule; and (e) Training of the technical and supervision staff. B. Technical Assistance for Management Improvement of CWSC and CSC This contract was signed with the above-mentioned U.S. consultant firm and comprised: * Training of the technical staff: consultants completed technical training for high and middle level leaders of CWSC and CSC. * Study on water resources management and optimization. * Water leakage control of distribution network.  - 35 - ANNEX B * Water Master Plan including water demand projection and financial analysis. * CWSC set up a workshop for water meter inspection, repair and calibration. * Study on water corrosion control. CWSC conducted tests in WTP No. 2 and WTP No. 3 and concluded that the water is slightly corrosive and required lime for water stabilization. * The consultant firm offered a sample of an energy management plan. CWSC has prepared a preliminary plan and will set up a database for energy management. * Finance management and commercial system. CWSC developed user database and computerized billing system and financial forecasting software. * Industry sewage management. CSC created an industry sewage management database. * Sewage collection system. Inspection plan and operation manuals have been prepared. C. Toxic and Hazardous Waste Management and Industry Park Plan Study: This contract was signed with a British consulting firm. The study was completed in 1998. The final report was sent to the World Bank which offered comments. The consultant firm completed additional work at the request of the World Bank. 1.8 Operational Experiences Changchun is a city with serious water shortage. On the basis of a feasibility study report, prepared by a Canadian consulting firm funded by CIDA, and the SAR prepared by the World Bank, the completed project has improved water supply in Changchun City. A reform of the water price policy has been carried out. Water tariffs have been raised three times (1995, 1997 and 1998) during the project implementation. The sewage tariff was approved by the Price Bureau of the Jilin Provincial Government. The sewer tariff will be collected from 2000 onward. Regulations for water conservation, pollution charges and the penalty system for pollution were established. The Institution of CWSC has been strengthened. The projection and planning capability was enhanced. The organization and operation have become more efficient. CSC has been established. The assets of the public sewer network were transferred to CSC. But until the collection of sewer tariffs commences, government subsidy is still needed. 1.9 Financial Situation The China Government has received a Credit in the amount of SDR 86.6 million ($120.0 million equivalent) from the World Bank in 1993 and transferred the Credit to Changchun Municipal Government for construction of this project. Due to the World Bank's cancellation of the Credit amounts for the WWTP and the pipeline from Majia to Dashuihe, a total of SDR 19.88 million (about $26.9 million) was canceled. Therefore, the actual Credit of the World Bank was reduced to SDR 66.72 million. Up to the Credit closing date, June 30, 1999, the estimated situation of reimbursement was as follows: (a) 33,010 thousands SDR for goods; (b) 23,577 thousands SDR for civil works; (c) 1,976 thousands SDR for consulting contracts; and (d) 8,155 thousands SDR were not utilized.  - 36 - ANNEX B The total project investment is as follows: By the end of 1998, Y 2,016,000,000 were expended, among them: Y 660,000,000 from the World Bank; Y 260,000,000 from the central government; and Y 1,096,000,000 from provincial and municipal governments. Before 1994, the income of CWSC could not cover operation and maintenance cost and depended on the subsidy from the government. Due to increased water prices, in 1996 CWSC achieved positive net income for the first time. In 1998, the profit was Y 46,855,000. CSC was founded in 1992. The assets of public sewer network were transferred to CSC with a total amount of Y 432,042,372. Its income stems mainly from user charges of sewerage facilities (Y 0.1 5/m3). Up to now, as the sewer tariffs have not been collected, CSC is still subsidized by the municipal government. The sewage tariff was approved by the Price Bureau of the Jilin Provincial Government. The sewer tariff will be RMBY 0.1 5/mi3 for residential users, 0.3/m3 for industrial users, about 0.2/m3 on average. 1.10 Construction Supervision The PMO was responsible for management and coordination of the whole project. The sub-PMO was in charge of the selection of supervision companies which conducted site inspection, construction quality control, progress control, construction expenditure control, and record keeping. Change orders are primarily presented by contractors, designers, supervision engineers or owner. Supervision engineers reviewed and examined change orders requirement and, if necessary, invited design institutes, PMO, sub-PMO and contractors for discussion. After verifications of the change order, supervision engineers prepared documents for the change order and submitted them to foreign consultants for review, and finally report to the World Bank for its approval. 1.11 Assessment of Performance of the PMO The PMO, since its establishment, was formed by several different organizations to complete the project. Those organizations included Raw Water Co., which belongs to the Water Resource Bureau. CWSC belongs to the Utility Bureau; CSC belongs to the Urban Construction Bureau. Assisting organizations included five design institutes, two international consultants firms., contractors and supervision companies. The PMO completed design, construction, commissioning and put the whole project into operation within a period of over five years. In general, the performance of PMO was acceptable. * The institution of the PMO was basically suitable to the project, especially, for this large, complex and inter-basin project. * The PMO has carried out all of the tasks stipulated in the Agreements except the wastewater treatment plant. The water shortage has been resolved. The residential water consumption has increased rapidly. The system can supply enough water to improve the living condition of the residents in Changchun. * The quality of the project agreed with the requirements of design. All components of the project have been put into operation. WTP No. 3 and related components have operated for two years with both water quality and quantity meeting requirements.  - 37 - ANNEX B Unfortunately, in order to speed up progress of WWTP and transmission pipelines, some active measures were taken. However, this was not acceptable to the World Bank and part of the Credit has been canceled. In addition, the amount of change orders is great. 2. Assessment of Performance of the World Bank 2.1 Performance of the World Bank during Project Preparation The feasibility study of the project was carried out by three local design institutes in 1988. The project was started in Oct. 1993. In the project preparation period, the World Bank suggested that the project should include environment pollution control components. The Bank Mission also suggested having foreign consultants to refine the feasibility study. With the World Bank's help, Changchun Municipal Government has received a grant of 1 million Canadian dollars from CIDA. A Canadian consulting firm took part in the study. Then, a feasibility study and a water plan for 2010 were carried out. The World Bank's mission reviewed and helped in the completion of the study. The World Bank completed the SAR of this project in Dec. 1992. Defining the Project. Before the identification of the Changchun Project, the World Bank had performed six projects in the water supply and sanitation sector in China. The World Bank had sufficient experience and understood major problems of the sector. For this project, the World Bank defined the objectives, scope and main components of the project. Project Preparation. In the project preparation stage, major work was carried out by the PMO. The World Bank played a very important role. They sent missions to visit sites, interview CWSC and related authorities of Changchun. The World Bank mission checked the progress of project preparation, reviewed study reports and helped to select alternatives both for water transmission and the wastewater treatment plant. Project Appraisal. The World Bank prepared the technical, economic and institutional assessment with the help of the PMO and prepared the SAR. 2.2 Performance of the World Bank during Project Implementation During the project implementation period the World Bank came to Changchun to inspect the project implementation twice a year. The World Bank held a seminar about procuiement in Changchun and a financial seminar in Beijing for staff of Changchun. The World Bank's missions included task manager, financial experts, technical expert, etc., amounting to a total of 27 people, 46 days/mission and prepared 9 memorandums in addition to their work at the office in Washington for this project. 2.3 Performance of the World Bank on Contract Implementation and Project Operation The World Bank inspected contract implementation and project operation according to the Credit Agreement. The World Bank has helped to: (a) Reform price policy, establish water conservation measures, and to design public information campaigns for water conservation; (b) Make CWSC operate on  - 38 - ANNEX B a full cost recovery basis with revenues generated through water rates; and (c) Improve the management of CWSC, such as setting up a computerized billing system, establish a GIS system and improve the abilities concerning water demand projection and planning capacity, etc. 3. Lessons Learned The "Construction Cost Review Report" prepared by the PMO and the management consulting firm described a number of lessons learned. The main content is as follows: 3.1 Project Management Office 3.1.1 Design * Improve clarity and detail of designs. The current designs resulted in many field changes. Some of this was the result of inadequate clarity and detail of the designs. * Improve performance with site surveys. Check that site surveys are current and reflect the conditions at the time of construction. * Increase knowledge of World Bank requirements. A better understanding of the importance of bill of quantities for unit price contracts. Correct bills of quantities are very important for proper implementation of contracts. * Follow construction through to completion. Local construction inspection practice does not require the designer to be involved in any of the construction activities unless a major change is identified. This approach ignores the detailed knowledge acquired by the designer during the preparation of the tender documents. 3.1.2 Construction Management and Supervision * There are two levels of management-the PMO and the sub-PMO. Future projects will need to consider the way to improve the coordination between the PMO and sub-PMO. The active participation of CWSC and CSC in the implementation of the project also is very important. * Improve knowledge of World Bank procedures-The PMO/sub-PMO learned the procedures of the World Bank as the .project progressed. This took more time as some information had to be communicated several times. The PMO would have benefited by having staff with previous World Bank experience or by sending some staff for specialized training. * Improve procurement procedures-Because the construction market was set up only recently in China, some contractors have limited experience and are getting jobs with unreasonably low prices. The PMO is not in a strong position to control such behavior. The PMO also does not have enough experience to negotiate with the low bidder when dealing with unit prices or unit quantities. In the future, contracts using a lump sum basis would make it easier for local administration. The PMO profoundly regrets the misprocurement which occurred in the bidding process.  - 39 - ANNEX B * Improve construction supervision-Construction supervision is a new system in China and was adopted only in the beginning of the 1990s. The construction supervision companies involved in this project were newly organized. The following deficiencies were noted: (a) some of construction supervision companies did not carefully enough study the bidding documents and technical specifications. They are not familiar with the procedure of the World Bank; (b) some of the construction supervision companies were not familiar with the imported equipment and did not properly manage the contract and infornation in a timely manner; and 3) in 1995, the PMO prepared a Construction Supervision Manual (submitted to the World Bank's mission in the same year), however, the rules of the manual have not been strictly adhered to. * Supervision should also extend to the design phase of the project. A whole process of supervision should be adopted. 3.1.3 Project Coordination * PMO, design institute, supervision companies and contractors cooperated closely to complete the project. The cooperation was successful, but the multilevel management affected the efficiency of the work. v The cooperation between PMO, foreign consultant firms and the World Bank was good. But they all had different styles of behavior which makes it important to foster understanding and good communication. 3.1.4 Proper Staffing * The present PMO/sub-PMO has insufficient staff with the experience to manage large World Bank loan infrastructure projects. This project was very complex. Considerations for the future should include: * Carefully select staff with the proper background and experience level. Provide the proper number of staff to carry out the duties. * The technical staff of each organizational unit participating in the project entities should improve their English to ensure work efficiency. * For future projects the foreign consultant firms need to do a better job of screening and assigning capable staff. Foreign consultants should fully understand the project and local conditions. 3.1.5 Bidding and Procurement The bidding process for packages of the WWTP and the raw water transmission pipeline from Majia to Dashuihe have followed the guidelines of the World Bank. PMO considered the shortness of the remaining time and started the work during the stage of clarification of bid evaluation by the World Bank. The PMO signed interim agreements with the selected contractors without permission of the World Bank.  - 40 - ANNEX B * PMO should learn from this mistake in procurement and strictly follow the World Bank's procedures in the future. * The contractors must be prequalified. Control of unreasonably low price bids (low-balling) and strengthening of contract management are still complicated tasks. * There are some essential differences between the Chinese and international practices in the bidding system. In the future this should be resolved. 3.2 World Bank * Avoid staff changes: This is difficult to do on projects such as this with such a long duration. Therefore, some guidelines need to be established recognizing that at some point new staff will likely enter the project. When new staff are assigned they should be instructed to honor decisions, directions, and commitments made by their predecessors on the project. * Reduce review time: On several contract packages, the review time spent by the World Bank was excessive. That is, the time was more than 4-6 weeks. This lengthy review time was spent at many different review stages of the contract package including the Tender Document (seeking approval to advertise for bids), as well as the bid evaluation stage (seeking approval to award the contract). In some cases, additional information was needed by the World Bank and these requests caused further delays for the PMO. * Allow lump sum contracts: The World Bank only allowed the unit rate type of contract for the water treatment plant package. Although the requirement was not specifically extended to the other bid packages, the PMO assumed that the World Bank preferred this overall. The World Bank reviewed all the bid packages, but did not request a change to lump sum on the other bid packages. Since the World Bank has more experience with other projects and has more procurement specialists, they should be more mindful about this subject in future projects. 4. Project Operation Planning CWSC enjoys good operational conditions. The details can be seen in the financial reports by CWSC submitted to the World Bank. The operation planning of CSC is described in the report on organization and responsibilities of CSC.  IRRD 24063R CHINA 5,, .( D. CHANGCHUN WATER SUPPLY AND ENVIRONMENTAL PROJECT 7 GENERAL LAYOUT RUSSIA _. .' OF PROJECT. MAJOR RIVERS ' - WATER TRANSMISSION PIPELINES AND TRIBUTARIES TRUNK SEWERSRUSA 5) PUMPING STATIONS tP.S.I a-sR WATERSHED BOUNDARIES FEDERATION PUMPING STATIONS P.S.) i ~~~~LAKES/RESERVOIRS AND DAMRS FD TO m WATER TREATMENT PLANT S SEWAGE TREATMENT PLANT -,nde ctsi-cIin) URBAN AREAS [ Ea INDUSTRIAL PARK (ldI SELECTED ROADS p -y HEUtONG- - -:' INDUSTRIAL PARK (~~~~f,,-y-RRAILROADS AG * HAZARDOUS WASTE LANDFILL SITE Isudy)L - PREFECTURE BOUNDARIES EXISTING FACILITIUS T. B. T. HM- ToH b,E JAPAN - __________w_____ .i np fHE,, w O AN |TUING SI N 4 | WATERSHeD ' OF THM)INSAI KOREA ,,, - --I -i? ,-~~~~~CA u sh;I ;,P:- PS _~~~~~~~~~~~~~~TM ToIiSoyugo ToUiouo O;D}S rD/o,n T -oftooioo \ ooda .rl\ Fg; _ T- ~~ ~ ~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ERRE 9